The Next Wave

There are a lot of fairly silly pieces doing the rounds at the moment about how the US and Uk may have 'turned the corner' on the financial collapse. This seems to be based on an optimistic reading of US and USA growth over the past few decades, plus a narrow focus on debt as a percentage of GDP. The argument, which on its own terms has some merit, that the US should never be anything like the major euro-zone economies is being made on sundry blogs. The you-tube piece below is a fairly good example of the sort of thing being said defensively.

I note from various publicly published sources that national debt as a percentage of GDP was still far lower in the US last year than in France or Germany. But how much water does one need over one's head before you realise you are not a fish?

Surprisingly, figures for consumer debt per inhabitant also seem to suggest that the US household is less burdened than the European. I find this hard to believe, but perhaps the average European just doesn't realise it. It should be recalled that Europeans are used to longer debts, less aggressive debt collection, and oligopolistic banks, and that patterns of debt vary widely across the euro-zone.

Nevertheless, I think that there is something in the idea that US policy makers may have convinced themselves that they are dodging the bullets with their names on them. I think, however, that after an era of globalisation, we are facing a long global crisis and that the past few months have only been the beginning.

Here is what I would like people to think about. The Eurozone banks are incredibly leveraged, particularly in Germany. The eurozone governments are very strained; if they were at or near surplus with low debt, they have been effectively forced into lending it to debtors on cheap terms in countries largely to the South of Europe. Their social systems depend upon a relatively high level of taxation, and their economies depended upon exports.

Though they did not face the vertiginous plunge that Britain and America faced, they are in remorseless decline themselves. Their unemployment is rising, and people are taking to the streets. Many governments in Central and Eastern Europe are effectively bankrupt.

So what is a UK/US 'recovery' worth, even if it happens?

These governments previously sold the United States goods and lent it money. They are focussed at the minute on a paradigm in which the US must be propped up, and the euro allowed temporarily as they see it to take up slack as a reserve currency, and in which they must simply hold on until the US recovers.

I think that the Chinese have a different idea. They have worked out that the US will be in the doldrums when Europe can't pay for it or earn from it and think that the US will be turning up asking them for more money. In the alternative, they can see that the US will seek, if it does manage to recover without the Europeans, to compete with China for dwindling global resources.

Therefore, they have been buying up commodities and oil assets, and recycling dollars and euros whilst doing so, at some pace. I might just point out that they have also oriented themselves inevitably to the Indian Ocean and are building a huge navy. When will the point come when commodities are only priced in dollars, as they now almost universally are, just to recycle old and diminishing Chinese stocks of that currency before they start paying in SDRs or renmimbi? How will the US react to that? How can the euro be anything other than a temporarily stable intermediate stage towards it?

The Russians have also noticed something is up. Last week, they quietly annexed the remains of their captured Ossetian regions, encouraged Caucasian states to re-orient their oil and economic affiliation to them, and played a game of trading off assets in central asia against Chinese sources. They started settling matters with the Ukraine. The way Turkey moved to progress relations with Armenia also suggests to me that they are all revolving around the gravity wells of oil pipelines, and responding to an increasingly evident and pressing need for advantage in the years to come.

The clear eyed men and women in Beijing and Moscow are preparing themselves for a world in which they can step back from the dollar and the euro, and they want an IMF currency backed by their own assets and a few sovereign funds to run it as the oil runs out.

A fatal complacency could now set in, in which the US prepares for inflation as a consequence of an apparent recovery and the euro-zone ignores its systemic problems in the manner of the third republic in 1939, hoping that they will go away. Europe will then wake up as winter approaches after a euro crisis to a world in which energy is desperately important and private companies and banks are collapsing, and will be forced to play games in the caucasus, and with Turkey, Algeria and Libya for their pipelines or energy resources, but it will be too late.

They may find that their gold has rusted. Then, as I am saying to the point of cliche lately, they'll have to face what iron will do.

Soon, Americans won't be worrying about whether they should be like France. They'll be worried about what they are to do with Mexico collapsing below the Rio Grande, the US States unable to fund themselves, the Chinese calling in debts because they now don't need to recycle so much into the American economy, and the Europeans descending into panic. The whole west may now be starting to slide and it may have mistaken a breathing space for a calm. Soon, we won't be able to afford that ruinous stupid set of wars we are overtly and covertly fighting.

This crisis is ongoing and worsening. Use your mind and read between the lines of the media manipulation. We are in historic trouble and major political backlash in Europe is on the horizon. Meanwhile, Russia and China are playing their hands very well.